Larsen and Toubro’s chairman Anil Manibhai Naik is a man who speaks his mind — and almost never pulls his punches. He has helmed the Rs 65,000-crore conglomerate for over 23 years before deciding to shed his executive responsibilities over day-to-day affairs in March this year. The 70-year-old straight-talking engineer will stay on for another five-year term as executive chairman, shaping its future and unleashing the potential that’s locked up in the enterprise. He has already taken a first step in that direction by restructuring the company into nine verticals each headed by a chief executive. The aim is to turn L&T into a Rs 1-lakh-crore giant by 2015-16 — and hopefully list some of these verticals on the stock markets.
In a free-wheeling interview with Sambit Saha, Naik talks about the economic slowdown, the contentious issue of land acquisition and its implications for industry, the need to speed up policy making, the threat that Chinese imports pose to Indian businesses, the future of L&T and his succession plan for the group.
Q: L&T is said to be the barometer of Indian economy. What is it telling us?
Overall, things aren’t good right now. (Everyone’s talking about) the slowdown in the global economy and the Euro crisis; but I don’t think the impact (of the external factors) on India could have been more than 20 per cent. [In the fourth quarter of 2011-12 (January-March this year, GDP growth tumbled to 5.3 per cent, the slowest growth in 29 quarters]. Most of it is our creation. This is because our democracy does not hold political parties responsible to the nation. No constructive work is happening. Then there is the problem of corruption and the common man is hit. The east is better off on this account though. Both the present and earlier governments were clean. But the east lacks industrialisation.
You need to sort out land issues to build industry or infrastructure. Just the other day, I was talking to someone who wants to put up a power plant and he was assured 3,000 acres. He has to pay Rs 15 lakh an acre, while the government price is Rs 1.5 lakh an acre. Still, he has been given only 700 acres. For the rest, landowners are asking him to cough up Rs 25 lakh an acre.
Take the case of the Mumbai airport; the Prime Minister has listed it as one of the top infrastructure projects that needs to be expedited. But the people are asking Rs 1 crore per acre after the land bill — which is now stalled — indicated that there would be no government involvement in the acquisition process. Before that, the land was priced at Rs 10 lakh an acre. The airport needed 5,000 acres. How will you build an airport if the land price alone is Rs 5,000 crore?
Q: What about the power plant you wanted to build in Bengal?
We tried two-to-three places in Bengal but finally gave up. However, we have increased our engineering activities here. The metals and mineral group is being relocated from Chennai to Calcutta. We are increasing headcount from 600 to 1,000 in the next 12 to15 months. We are doing a lot of engineering, construction and contracts work. We bagged the biggest transmission order. We are building a bridge here; also Vivekananda bridge no 2. All this is happening because of our increased attention (to Bengal).
Q: You met chief minister Mamata Banerjee a few months back. What happened?
Yes, I did. She welcomed us and said she wanted clean and efficient companies such as L&T in Bengal. I suggested that this was possible if the government considered changing the tender criteria. The tender process must recognise merit and performance. It should not place emphasis on picking only the lowest bidder. On-time execution is very important. If a project is delayed, there is the burden of additional finance costs and the loss of opportunity.
Because of corruption (within our system), small contractors qualify to bid for projects. But they fail to complete projects within time. Unless we resolve this nationally, we will have a big problem on our hands.
Q: Do you think infrastructure projects should be treated differently?
The standing committee (on land acquisition) must take note of the exceptions. There has to be a special category for infrastructure projects. All infrastructure projects must be listed under this category which must include roads, power plants, ports, airports, telecom, effluent treatment, water linkage for agriculture, and food storage facilities.
Q: But isn’t Bengal a step ahead of everyone else when it says no land can be acquired?
Yes, they have placed a condition that they will not acquire any land for private projects.
Q: Do you think Bengal should reconsider this stand?
Yes, it should. The chief minister has said no land will be acquired for private enterprise. But this rule should not apply if you want to put up a power plant that is so essential for Bengal.
They have to resolve the land acquisition process in such cases. A distinction should be made between a commercial transaction and an essential infrastructure project. World over, this is made.
Q: If land prices soar, can industry flourish and will India remain a low-cost economy?
No manufacturer can survive with this kind of land prices. Everything that you want to do with land must be linked to employment. No matter what the level of investment, there should be a direct emphasis on jobs. The government must monitor this closely; otherwise, everyone will make promises and never deliver on them.
The government must provide the land for infrastructure projects. For all the other projects, job creation should be the sole criteria. India is a poor country and, hence, needs to create jobs. The government mus act as the facilitator for infrastructure projects. We have acquired a lot of land for our projects; but most of it is government land. The state has aggregated the land for us.
Q: What measures do you think the Centre needs to take now to jumpstart the faltering economy?
Drastic steps need to be taken. If we don’t take them, we can reach a point of no return. We had hoped that action would start after the presidential election. Now, there is the election for the vice-president. That will be followed by the elections in Gujarat. Next year, five more states will go to the polls.
We need to provide an immediate thrust to all infrastructure projects. The gridlock over mining needs to be resolved. Coal India controls 90 per cent of the coal reserves. That simply needs to be taken away and auctioned. There should be a legislation stipulating that no company can hold more than 10 to15 per cent of national reserves. Then, coal will be available to power plants. It is not as if we don’t have coal; but there are huge inefficiencies built into the system.
Q: What about the manufacturing sector where growth has drastically slowed?
The State has to do something about the Chinese. Protectionist barriers have come up all over the world because of the global slowdown. But not in India. Do you know that a ship cannot fly the US flag unless it is built in America? In India, we import ships from Korea and China. Our shipbuilding unit is lying idle. The government orders are given to public sector units that cannot deliver even in 10 years. So, the Navy put pressure (on the government) and they had to allow imports. So, you are saddled with a bunch of sick PSUs and the burden of imports.
If the defence sector is opened up to private players, huge employment opportunities will be created. There will be technological development and ancillary growth. But we prefer to stick to our out-dated policies; we really have no one to blame. It is the same with our policies on land, mining and infrastructure.
Q: But where will we get the money to bankroll these huge projects?
If we get going, the money will come from abroad. Investors’ confidence will be rekindled once they see clear evidence that we are back on track. When I travelled overseas in 2010, I saw that foreign investors had immense confidence in India. Today wherever I go, it’s all very negative. Our reputation has sunk to its lowest level. We have to take fast decisions and that cannot happen unless the allies remain together in the coalition.
Q: How is L&T preparing itself to face the future?
We have depended far too much on the Indian economy. We are diversifying our businesses. We make Rs 8,000 crore from overseas projects. We aim to take it to Rs 25,000 crore in the next five years, accounting for 25 to 30 per cent of the total business. We will then attain greater stability. But it takes time to build an organisation globally. We will concentrate on this process over the next 12 months.
Our order intake from outside is likely to be $3 billion, which is about Rs 16,000 crore. We have given a guidance for Rs 84,000 crore. So, we have to somehow get revenues of Rs 70,000 crore from India.
Q: Does that look possible?
I think so. L&T will have to be far more competitive; we have to cut costs by 10 to 15 per cent or be ready to sacrifice margins by a little bitů not much. We have to be more efficient and productive. We have established several task forces within the organisation to reduce costs.
Last year, we didn’t get any hydrocarbon orders in India. But we got four overseas. This year, we will get four jobs totalling Rs 6,000 crore. I am using this difficult period to prepare L&T for a better tomorrow. We have given a guidance of 20 per cent growth in order intake. We achieved that in the first quarter. We will do that in the second quarter too. We are watching the situation to see how things turn out in the third quarter. The fourth quarter is still unclear.
This will give me some time to introspect and prepare for the future. Even if the infrastructure sector is revived, it will take two years before things come into action. This year, we will manage. But I am worried about the next two fiscal years. By 2015-16, I hope things will improve.
Our customers are going through immense financial stress. Even our competitors are felling the hat. Only the best of the best will survive. We have to ensure that L&T is among them.
Q: You had ambitions in the IT sector? You wanted to acquire Satyam Computers? Are you still interested?
We are still the largest shareholder in that company after the Mahindras. We will exit when the price is right. Meanwhile, we are growing our IT business internally. It will be around Rs 5,500 crore. We are looking for an acquisition if there is a good fit.
Q: Is there any group company or vertical that you would like to take public?
Not in this market. I can’t think of anything happening on this front in the next two years.
Q: L&T is going through a transition process. You are in the process of building a new leadership. How are things panning out?
It is a huge effort. L&T fights with several companies to attract worthy independent board members. We have just one board for this massive organisation. So, the pressure on this board is immense. We need to rationalise and simplify without losing focus. We are currently working on the Lakhshya II programme. It will be completed by 2016. Every quarter, I am going to make sure that one or two successors are found for second- or first-level positions.
We appointed three directors in the past one year. Our construction director is only 51 and he will have a 15-year tenure. This vertical accounts for 40 per cent of the group’s business. Our CFO is also 51 and he is brilliant. That means successor to the group we have found in CFO.
But we still have some areas where leadership has yet to be found. Hydrocarbons, for example. Now I have agreed to bring in foreigners. We have given the mandate to all the global head hunters to fill up all the key positions in the next two to three years if we cannot fill them from within.
I am spending about 5 hours a day on shaping our HR policy, succession planning and talent acquisition.
Q: Finding your own successor must be the toughest challenge.
We have some breathing room. The reason we could not do it is because K. Venkatraman (L&T’s chief executive and managing director) is going to retire before I do. If I go at this juncture, there will be nobody left. I have taken upon myself the task of building the organisation up to two years ahead of my retirement. One year before I go, I want to announce that this is the man who will take over. I am also after my directors to find their own successors. This time everyone knows that if they don’t do it, I will do it. If one of the directors can’t find his successor, I tell him that you please run the business; I will find your successor.